JPMorgan Ignored Risks, Fought Regulators: Senate Report

JPMorgan Chase & Co
ignored risks, misled investors, fought with regulators and
tried to work around rules as it dealt with mushrooming losses
in a derivatives portfolio, a Senate report alleged in a damning
review of the largest U.S. bank's management.

JPMorgan Chase & Co
ignored risks, misled investors, fought with regulators and
tried to work around rules as it dealt with mushrooming losses
in a derivatives portfolio, a Senate report alleged in a damning
review of the largest U.S. bank's management.

Senior managers at the bank were told for months about the
bad derivatives bets that ended up costing the bank $6.2
billion, but did little to rein them in, according to the
Permanent Subcommittee on Investigations report on Thursday.

Committee sources said the losses from the trades appeared
to total more than $6.2 billion. But these sources said they
could not determine how much because the trades originally made
by the bank's Chief Investment Office were moved to other parts
of the bank. They said JPMorgan declined to provide them more
information about the values of the positions.

The Senate report came on the same day the U.S. Federal
Reserve separately asked JPMorgan to improve its capital
planning process as part of an annual "stress tests" of banks.

A JPMorgan spokeswoman said: "While we have repeatedly
acknowledged mistakes, our senior management acted in good faith
and never had any intent to mislead anyone."

The barrage of bad news for JPMorgan, long seen as the
safest and best-managed U.S. bank, could taint the reputation of
the bank, as well as Chief Executive Jamie Dimon. Dimon has been
one of the most outspoken critics of Washington's attempts to
tightly regulate Wall Street after the 2007-2009 financial
crisis.

It could also strengthen advocates calling for stricter
financial reform regulations. In particular, the 301-page Senate
report will likely give ammunition to regulators crafting the
Volcker rule, which proposes to put limits on banks betting with
their own funds.

The Senate subcommittee will hear directly from senior
JPMorgan executives - but not from Dimon - at a hearing on
Friday morning on the derivatives bets that came to be known as
the "London whale" trades.

Senator Carl Levin, who chairs the subcommittee, said he had
not yet decided whether to refer the report to criminal or civil
authorities. He said the panel could hold further hearings and
left the door open to calling Dimon for the hearing.

CLASHES WITH REGULATORS

While Dimon publicly criticized lawmakers for putting on
onerous rules on banks after the crisis, the report shows
JPMorgan also frequently clashed with regulators behind the
scenes as the losses mounted last year.

At one point, Dimon ordered the bank to stop sending daily
trading profit and loss reports to the Office of the Comptroller
of the Currency, one of its main regulators, Senate
investigators said.

The Senate report also accused the bank of changing its risk
models to work around capital rules. The report includes emails
from a quantitative engineer for the bank in which he explained
how he could rearrange its modeling procedures to mask the
ballooning risk inside the chief investment office.

The bank "increased risk by mislabeling the synthetic credit
portfolio as a risk-reducing hedge when it was really involved
proprietary trading," the subcommittee's top Republican, John
McCain, said in a briefing with reporters.

Senate investigators also faulted regulators at the OCC for
missing red flags and failing to be aggressive in monitoring
problems at the bank.

The agency was informed of JPMorgan's risk limit breaches
and of changes to the model the bank was using to calculate its
risk, yet raised no concerns at the time, the report said.

An OCC spokesman said the agency recognizes shortcomings in
its supervision and has taken steps to improve its supervisory
process. The spokesman also said the agency is continuing to
investigate the matter and "will take additional action as
appropriate."